Q2 2021 EMCORE Corp Earnings Call
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Good day and welcome to the EMCORE second quarter 2021 earnings call Today's conference is being recorded.
At this time I would like to turn the call over to Tom Minichiello, Chief Financial Officer. Please go ahead.
Thank you and good.
Good morning, everyone and welcome to our conference call to discuss EMCORE is fiscal 2021 second quarter results. The news release, we issued yesterday afternoon is posted on our website EMCORE dot com.
On this call Jeffrey literature and of course, President and Chief Executive Officer will begin with the discussion of our business highlights.
I'll then update you on our financial results for the quarter and we will conclude by taking questions.
Before we begin we would like to remind you that the information provided herein may include forward looking statements within the meaning of section 27, a of the Securities Act of 1930 free and section 21 E of the Exchange Act of 1934 of these.
These forward looking statements are largely based on our current expectations and projections about future events and trends affecting the business such forward. Looking statements include in particular projections about future results statements about plans strategies business prospects and changes in trends in the business and the markets in which.
We operate <unk>.
Management cautions that these forward looking statements relate to future events or future financial performance and are subject to business economic and other risks and uncertainties, both known and unknown that may cause actual results levels of activity performance or achievements of the business or in the industry to be here all of different from those.
Expressed or implied by any forward looking statements.
Caution you not to rely on these statements and to also consider the risks and uncertainties associated with these statements and the business, which are included in the company's filings available on the SEC's website located at SEC Gov, including the sections entitled risk factors in the Companys annual report on form 10-K.
The company assumes no obligation to update any forward looking statements to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.
In addition references will be made during this call to non-GAAP financial measures, which we believe provide meaningful supplemental information to both management and investors. The non-GAAP measures reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods.
<unk> are encouraged to read these non-GAAP measures as well as the explanation and reconciliation of these measures to the most comparable GAAP measures included in our news release.
I'll now turn the call over to Jeff.
Thank you Tom.
Hey, good morning, everyone.
Of course second.
Fiscal quarter of revenue was up 15% over Q1 coming in at $38 4 million more importantly, GAAP profitability increased from eight to 13 per diluted share of <unk>, 63% increase this combination of top line growth and disciplined.
Expense control resulted in excellent flow through in the P&L.
<unk> of non-GAAP operating profit of $5 9 million or 15% of revenue.
This represents EMCORE its third consecutive quarter of growing profitability.
It represents the best financial performance of the company has turned in on a non-GAAP basis since at least $19 97.
Our strong financial performance.
Happens against the backdrop of operational challenges of particular note for semiconductor shortages that we overcame and.
Cable television transmitter production.
Although we believe we're in good shape in terms of inventory from the June quarter, we are already working potential flash points for the September and December quarters. Since we expect the shortages to last at least six months of.
The particular concern or RF Ics, the passive which are being used in <unk> and Wi Fi six systems.
The supply gets tighter we have designs that use alternative parts and believe we can deploy and qualify them on short notice.
Inventory levels increased a bit quarter over quarter. However, we expect that this will resolve itself completely as we finish the transfer project from Beijing to timeline.
The transition of our cable TV manufacturing operations to Icaria as Bangkok facility has reached the point, where we will be adding additional transmitter manufacturing equipment to increase capacity in Thailand.
Transmitter yields in Bangkok have remained solid and we expect to see production increases in Thailand in the June quarter, while COVID-19 concerns have generally been produced in the U S. Thailand is the only vaccinated a limited number of people to date the.
The infection rates from the bank cost area of <unk> and could disrupt our cable TV production plant.
Consequently, we will watch things closely there until disease incidents declined and the vaccination rates to meet the goals of the Thai government.
Entering restrictions performed workers into Thailand hasn't loosened a bit giving us an opening to get our Beijing team in the Bangkok to finish the transfer of however, this window of could close at any time.
Turning to individual business areas cable CGM sensing shipments drawn strong performance in the broadband unit chips were up slightly as well msos continue to invest in their networks to break bottlenecks created by bandwidth demands from work at home initiatives of EBIT home security system.
Somewhat surprisingly msos of mentioned the video doorbell are placing significant bandwidth demands on networks and that their use is growing rapidly.
Recent public comments comments from Msos and major Oems are consistent with our longer term order book, which now extends well into the March 'twenty two quarter.
Although we are always cautious about the cable TV business, given the cyclical nature of our backlog remains strong.
Looking beyond the very near term in cable TV.
Seeing additional evidence that our proprietary linear optics will continue to lead the industry for many years in.
In the 2050 project, which was an extensive survey of Msos sponsored by Etfs Corporation and freely available on their website several points were.
The net worthy of quota.
Ex reported more than 60% of cable operators with more than 1 million subs and expect to be serving customers from their HFC networks 20 years into the future.
Nearly 30% of cable operators, serving 1 million of more subscribers expect the lifetimes of their HFC networks to extend the 30 years.
As I discussed broadband had a great Q2 led by cable TV. However, the broadband business unit generated important successes outside of cable television.
We had a strong sensor demand in the quarter, which we expected expect to continue for the foreseeable future.
Finally, our lidar incentive components continue to garner interest from a wide variety of potential customers outside of sensing we continue to rack up more design wins for highly differentiated chip products and expect to see growth materialize towards the end of calendar year 'twenty one.
We're encouraged by the demand that we see for our new chip and sensing products and see a bright future for the broadband business unit beyond its cable TV routes.
Aerospace and defense declined slightly due to seasonal variation of delivery dates from Q mens and defense opto, even with fog being slightly up margins were right around where we expected them to be.
As we discussed last quarter, our Q Mems team and Concord announced several exciting new products. The SDI $1 70 was announced which is our first product per airborne weapons platforms, such as the J D on smartphones.
Perhaps more importantly, the 170 has gone through rigorous testing and of foreign National Laboratory and received high marks for its performance.
The STI 500 went from even more rigorous testing out of U S Defense Laboratory and came out number one against 18 other iam used.
These validation bodes well for the future of our Q Mems products.
Demand for our defense Opto electronic products remained solid with shipments for the FAA control tower, making up a significant fraction of revenue.
Production orders for fiber optic gyro products remained steady to slightly up with additional contract revenue for our preproduction nonrecurring engineering driving down our net engineering costs.
The excitement over the M 300 is growing and it continues to be evaluated by six tier one prime contractors.
Made steady progress in design validation and qualification testing for our fog products and are beginning to see the first signs of a return to normal operations within our customer base.
As the number of vaccinated personnel increase both here at EMCORE and with our customers, we expect to see of trajectory towards the normal qualification scheduling.
While we're seeing the first signs of this improvement it hasnt become a significant change just yet even in states like Texas, and Florida, where COVID-19 restrictions have largely been lifted.
Moving on to the overall guidance for the second fiscal quarter, we are expecting to see stronger than normal performance from our cable television products with slightly increased revenue from our other.
The biggest nodes of the caution remain tied to semiconductor supply and any unexpected changes with COVID-19 infection rates in Thailand.
Taking all of this into consideration. We currently expect revenue to be in the range of 40% to $42 million.
With that I will turn the call back over the top.
Yes.
Thank you Jeff.
<unk> with the preliminary results announced on April <unk>.
Consolidated revenue in the 2021 fiscal second quarter was $38 4 million, an increase of 15% when compared to $33 4 million in the 2021 fiscal first quarter.
Aerospace and defense segment revenue was $13 1 million this quarter lowered by 4% when compared to $13 6 million in the prior quarter.
Timing of customer orders for our Q Mems navigation in defense Opto electronics product lines was the primary reason for the sequential quarter change while revenue for our fog navigation business increased slightly.
Driven by higher sales of single Axis gyros for raytheon's, multi spectral targeting system and increased nonrecurring engineering or NRI contract revenue.
Broadband segment revenue was $25 3 million up 28% when compared to $19 8 million the quarter before driven by strong demand from the cable TV products as Msos continued to expand their networks to meet increased bandwidth demands.
In addition revenue for our growing sensing business on a sequential quarter basis, almost doubled largely on strong demand for the China rail project.
Through the first two quarters of fiscal 2021 consolidated revenue was $71 8 million, which is already roughly two thirds of the total for all of the prior fiscal year.
Turning to the rest of the fiscal <unk> operating results on a non-GAAP basis.
The A&D segment gross margin was 30% compared to 31% the quarter before due primarily to volume and mix changes.
Broadband gross margin was 43% consistent with the prior quarter.
Gross margins on a trailing 12 month basis for A&D, and broadband were 32% and 41% respectively.
Given the overall shift this quarter to a higher mix of broadband revenue. The consolidated gross margin increased to 39% in fiscal <unk> compared to 38% in the prior quarter on a year to date basis. Our gross margin of 38, 4% is significantly ahead of the 28, 9% during the same period.
On a year ago.
Operating expenses came in at $8 9 million in fiscal <unk> compared to $9 3 million last quarter. The main driver for the decrease was R&D expense within the A&D segment, which was $500000 of lower for price for two primary reasons.
One was the transfer to cost of goods sold of a higher amount of engineering labor expenses related to NRL contract revenue. The other was reduced material costs associated with several navigation product development projects.
To put our operating expenses in perspective Opex. During the first two quarters of fiscal 2021 totaled $18 2 million or 25% of revenue substantially better than the $19 9 million of 40% of revenue during the same period last year.
Moving to the bottom line as the result of rising revenue continued gross margin strength and disciplined expense management. We grew operating profit in the March quarter to $5 9 million and operating margin to 15% compared to $3 $5 million on 10% of the quarter before.
The significance of the operating leverage we have on our business model was on full display this quarter.
On sequential growth of 15% of revenue on sequential revenue growth of 15% operating profit grew 72%.
Adjusted EBITDA, which adds back depreciation increased to $6 $9 million of 18% in <unk> compared to $4 4 million or 13% in the prior quarter.
March quarter's net income and EPS on a non-GAAP basis was $5 9 million and <unk> 17 per diluted share compared to $3 4 million of <unk> 11 per diluted share the quarter before net.
Net income and EPS on a GAAP basis was $4 4 million and 13 per diluted share compared to $2 $6 million <unk> per diluted share in the December quarter.
Especially noteworthy in <unk> was our GAAP net income at 11, 4% of revenue.
Turning to the balance sheet, we had cash net of the loan payable of $58 8 million at March 31, compared to $24 7 million at December 31.
The cash increase of $34 1 million included net proceeds of $33 1 million from the public offering completed in February the.
The additional $1 million was generated from ongoing business activities.
The 2021 second fiscal quarter now marks the fourth consecutive quarter of positive cash from operations.
Before we get to the Q&A I'd like to share with you that both Jeff and I expect to be available for investor meetings at the following upcoming virtual conferences.
On may 18th the 16th annual Needham Technology and media conference.
And then right after the latest excuse me right. After the Memorial day on June 1st the Cowen 49th annual Technology Media and Telecom conference.
And on June 2nd the 18th annual Craig Hallum Institutional Investor Conference.
We plan on providing further details prior to each event.
So with that we will now open up the call for your questions.
Thank you.
I would like to ask a question. Please signal by pressing star on your.
The telephone keypad, if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question we will pause for just a moment to allow everyone the opportunity the signal.
Our first question is coming from Jason Smith with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions just wanted to follow up on your comments on the supply chain constraints are you seeing any impact on the on gross.
<unk> expect to see any impact on gross margin just get with increased freight costs and things of that nature.
Hey, Jason and.
Not really the.
The there's a number of let's call bottleneck components of where we've seen some pretty outrageous price increases that youre going out the brokers.
And smaller distributors that have figured out that they are the only ones who have supplies, but right now it doesn't look like any of that makes up of substantial fraction of the cost.
I don't think it is really going to hurt us the.
Other thing is that in the case of the cable TV transmitters of course.
We do have fixed.
Price is coming from our supplier.
So.
They have to eat some of those costs.
So I don't think its kind of hurt us.
Okay. That's helpful and obviously the broadband segment continued to see some really nice traction with that order book extending even further out just given that is it fair to assume that you guys will be able to sort of that.
The traditional seasonality in the December and March quarters.
As it looks right now.
Especially because I've just reviewed the manufacturing schedules certainly.
We're not expecting to see much in the way of seasonality change.
Change in.
The December quarter going into March probably not much.
Way too early to tell for sure.
A lot of things move around and we try to accommodate cut.
Customer request, but right now the order book is.
Quite full and in March.
Okay, I'll jump back into queue. Thanks, a lot guys.
Youre welcome.
Thank you once again as a reminder to our audience you may ask a question by pressing star one.
Our next question is coming from Richard Shannon with Craig Hallum. Please go ahead.
Great, Jeff and Tom Thanks for taking my.
Question, Congratulations on some nice numbers here.
Maybe a quick tactical questions for Tom on the on the guidance you had given us.
The nice very nice revenue number here and you're suggesting that the cable TV is most of the growth here on how should we think about the the rest of the P&L here I would imagine that the gross margins could probably move upward somewhat.
How should we think about the opex movement as well here.
Sure Richard the gross margin and the Opex has been steady the last few quarters as you can tell from looking at the.
If you look back not just this quarter, but the even the two quarters prior.
We would expect more of the same.
We like where the gross margins of our for broadband in this 43 range.
It could move a little bit up a little bit down.
In any given quarter.
It's likely to get a little bit better with volume.
Increasing in the next quarter the.
<unk>.
There is always mix and other absorption components that could.
That could change that but that's what we expect to see and then on A&D as we've discussed in the past right.
Our gross margin again thats been steady as has been the revenue in that business segment over.
What's now probably five or six quarters.
And Thats all about scale.
In the gross margin for A&D, So, we probably expect it to be pretty consistent in the near term.
And then Opex is key.
It came in.
Lower than expected this quarter.
There is a.
As you probably heard in my prepared remarks, there is a.
We transfer engineering labor expenses, when it's attached to an army contract revenue and that was hit a high point this quarter and so there was more of that moved on the P&L. So we would expect a little bit less of that next quarter and you're probably looking at operating expenses.
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Back in the range of where we've been which is sort of in the mid nine millions.
Okay, Great. That's good that's helpful.
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Jeff a question here as it relates to your comments on the supply constraints past. This quarter you noted some issues here and well known in the industry.
How should we think about the impact.
<unk> on potential trends in your broadband or more specifically cable business going beyond the June quarter, Youre, obviously, a fantastic number here for June are you, suggesting to us just to kind of flatten out for a few quarters or a couple of quarters of all of these get burned through or could it could we actually see of down on a sequential.
Sequentially from June after that.
Well it's.
Let me fire up my Crystal ball here.
Right now we think we understand.
And certainly in the June quarter, we feel pretty comfortable that we've got the supplies sorted through.
And the things we're counting on are largely in hand at this point.
The I wouldn't call it of shopper necessarily but the behavior, we've seen out of some of the.
Semiconductor manufacturers is orders that she had been confirmed three times all of a sudden.
The push with no warning and so.
Our supply chain view of the world is that a burden of hand is what really matters in terms of getting a hold of the components.
There are.
As I pointed out earlier, there are a couple of little.
It is literally half of dozen components that are what I'll call I'll turn the bottleneck components and we are actively going after those for.
Q4 September quarter on December quarter.
The good news is that we don't need hundreds of thousands of millions of these things and so we can go into the smaller distributors and be successful. So I don't think it's going to hurt us and.
Beyond the current quarter in terms of guidance.
Yeah.
See reasons why cable TV could still continue to move up a bit in terms of revenue.
We've got to let our customers scheduling tell us that.
It's a little hard when we start talking about the September quarter shipments to know exactly where we're going to end up.
The answer your question Richard.
Yes, yes, that's very helpful. Thanks for that view on.
My last question for a jump in the queue here is probably of kind of a multipart one here, Jeff you referenced it in your comments on and you're really talking about the press releases. We've seen from you in the last month or so on your two new SDI products. So she very intriguing.
Going after some markets that have been there have been sole source for a long time here.
Showing some very strong performance next year, how do we think about the.
Getting design wins going through validation qualification processes of eventually showing benefit to your income statement.
Kind of timeframe. These obviously here you know it could be long lead time.
Projects, so wanted to get a sense of when we start to see some success from those on the income statement.
Yes, if we were in a normal world I think it would be very easy the latest out the challenge. We've got is that in some cases.
Customers are early spending limited amounts of time of the offers and we're certainly starting to see some of that breakdown in terms of.
Scheduling.
For let's call it.
It's well known that the for example, the FBI $1 70 as of form fitting function compatible replacement for the Honeywell HD 700.
So in semiconductor part of land, we're going to try to engage in some sockets stealing.
And for applications like that.
You can typically get qualified in six to nine months and then you start into a lower volume production as.
10 multiples of 10, or even 100 of quarter and then it can move up from there so.
So I think there's a chance that some of the stuff we could see right at the end of the calendar year.
But certainly into 'twenty, two there should be of pretty significant impact from some of these products.
Okay, Great. That's great perspective, I think that's all of the question from me I'll jump back in the queue guys. Thank you.
Richard Let me give you one more thing.
Interestingly I mentioned that the FBI $71 70 was tested in a.
Our foreign National Laboratory, one of the things they did was validate that our communications protocols.
On the electrical performance of the communications interface.
Wasn't the drop in.
And so that.
While technically not <unk>.
Terribly demanding is one of these things that you really want to make sure you get right.
And we were glad to see these guys to come back and say, yes, you got it right.
Okay, great great additional perspective, the Jeff. Thank you that's all from me.
You're welcome.
Thank you.
That concludes today's question and answer session. Mr. Richard at this time I will turn the conference to you for any final remarks.
Thank you.
And I'd like to thank all of the rest of the you for your interest in EMCORE and your time and attention on the call I also want to recognize our team for such a great quarter and producing outstanding financial results. Please stay safe everyone and goodbye.
Thank you. This concludes today's call. Thank you for your participation you may now disconnect.
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